Wealth creation refers to the way in which we invest in different financial asset classes to help fulfil our financial goals and meet our needs. One way to do this is planning our goals and then investing in the share market through SIPs.
What is a SIP?
A Systematic Investment Plan (SIP) is an investment mode that involves investing a fixed sum of money at regular intervals. It’s like a good habit or routine you take on towards building your investment kitty.
SIPs are quite popular among investors for the following reasons:
- You can invest as little as INR 500 a month.
- SIPs can tackle market volatility relatively well.
- The stipulated amount can be deducted automatically after giving standing instructions to your bank, making SIPs highly convenient.
It’s a pretty hands-on world now, especially after COVID, and we book most things online to save time, money, and energy. Another smart way of investing and wealth creation is by investing in the share market through SIPs. And it’s quite simple, you only need to start. So, read on to understand its facets.
How can you invest in the share market through SIPs?
A stock SIP is very simply a method of online stock investing over time. You invest in shares rather than buying units in mutual fund schemes through SIPs.
- First, you ascertain how much money you plan to invest.
- Next, your brokerage business fixes a “purchase” order for a prefixed number of shares for your monthly commitment amount.
- These shares are available for investing through SIPs on a daily, weekly, and monthly basis.
Stock investing through SIPs allows you to invest in multiple companies at once. You can decide and set a maximum buy price with some brokerages. Plus, you can determine the number of instalments and ensure that your trading account is funded accordingly.
Alternatively, you could simply give permission through a SI (standing instruction) for a debit from the bank account used to purchase shares.
You will be charged a brokerage fee for each trade that is executed.
Investing in the share market vs. investing through SIPs in mutual funds
While investing in mutual funds through SIP, you have the advantage of convenience and professional management. Also, the tax implication would occur only when you sell the investment. Moreover, the sale and purchase transactions executed by the fund manager in your MF portfolio are not liable to tax.
In contrast, while investing in the share market through SIPs, the onus is more on you. You will need to keep an eye on your investments which invest directly in shares. You will have to watch out for which stock has become expensive, what to buy, what to sell, what to hold, etc.
This will need higher active involvement from your side, even if investing in a staggered manner. It will include analysing company reports, following the market and business trends closely, and other practices to keep abreast of the latest developments in the stock markets.
What are the perks of investing in the share market through SIPs?
Stock investments through SIP have many merits and perks. Let’s give you a quick list for your perusal.
- Inculcate the habit and discipline of investing: As they are by nature designed to ensure you put a fixed amount away each month- it gets in you the rigour and discipline to save.
- Benefit from rupee cost averaging: Market volatility being part and parcel of investing, the concept of rupee cost averaging denotes averaging out the cost at which you buy stock units. When stock prices fall, a SIP automatically gives you more units, and when stock prices rise, it reduces your units, thus averaging out your savings.
- The power of compounding: You can save more money by reinvesting your initial investments and through SIPs, you also average out the costs of investing. As with everything else, the early bird catches the worm. Even for stock investments through SIPs, the earlier you begin, the better, as you will benefit from compounding power.
A great option for the long term: This option is good for investors who lack market knowledge and want to benefit from long-term passive investing. It is also ideal for salaried individuals who may not have a large amount to invest but want to benefit from regularly investing a smaller fixed amount as per their comfort levels.